When Withdrawing Members Still Have Obligations: How LLC Agreements Can Bind Former Members.

Withdrawal from an LLC is often misunderstood. Many members assume that once they give notice and formally leave, their obligations end. But as Flink v. Smith makes clear, withdrawal does not necessarily sever all contractual responsibilities. Depending on how an LLC’s operating agreement is drafted, certain obligations may survive withdrawal—and courts will enforce them.

This is especially important in professional or closely held LLCs, where ownership transitions and buy–sell provisions play a central role in the company’s stability.

So what exactly did Flink v. Smith teach us? Below are the key lessons for LLC members, drafters, and anyone advising on ownership transitions.

1. An Operating Agreement Can Impose Duties That Continue After a Member Leaves

In Flink v. Smith, the withdrawing members argued that once they exited the law firm’s LLC, they could no longer be required to buy out the founder’s remaining shares. They claimed their obligations under the 2010 Operating Agreement ceased upon their withdrawal.

The court disagreed.

The operating agreement contained a multi‑step buyout process that included a final step requiring the former members—by name—to purchase the founder’s remaining shares if the LLC ceased operating and the remaining members did not buy them. The court held that this obligation could survive their withdrawal because:

• the agreement explicitly imposed duties on them personally,

• nothing in the agreement released them from their buyout obligation upon withdrawal, and

• LLC operating agreements may legally bind former members to post‑withdrawal obligations, especially when those obligations relate to ownership transitions.

  
  

Takeaway:If the obligation is clear in the operating agreement, former members can absolutely be bound—even after their membership status ends.

2. Withdrawal Does Not Automatically Erase Personal Contractual Promises

A common misconception is that contractual duties vanish when membership ends. But LLCs are, as many courts repeat, “creatures of contract.”

In Flink, the buyout duty was part of a long‑term ownership transition plan designed to ensure that the founder, Flink, would eventually be bought out by 2018. Allowing the departing members to avoid this simply by withdrawing early would have undermined the very purpose of the buy‑sell structure.

The court emphasized that:

• the agreement was signed by the members in their personal capacities,

• nothing in the withdrawal clause nullified their contractual duties, and

• LLC Law does not prohibit operating agreements from binding former members.

  
  

Takeaway:Contractual obligations do not disappear unless the contract says they do.

3. Withdrawal Does Not Automatically Dissolve the LLC

The withdrawing members argued that because the firm ceased to function after they left, the LLC was no longer an operating entity, and thus they should be relieved of obligations.

But the court found:

• the LLC did not dissolve merely because members withdrew,

• LLC Law § 701(b) requires dissolution procedures that had not occurred, and

• the company may “continue without dissolution” even after major departures.

This mattered because one trigger for the final buyout obligation was whether the LLC was “no longer an operating entity.” The court held that the issue required factual development—not automatic release.

Takeaway:Withdrawal does not automatically dissolve the LLC—and dissolution language matters, especially when tied to buyout obligations.

4. The Purpose of the Contract Matters

The court reviewed the four‑step buyout structure and emphasized that the contract’s purpose was to guarantee that the founder’s remaining shares would be purchased—either by members, the LLC itself, or ultimately the departing members.

The court noted:

The obligation to purchase Flink’s shares functioned as a form of financial security for the founder.Releasing the withdrawing members would undermine the agreement’s core intent.

Takeaway:Courts interpret LLC agreements holistically. If the purpose of a contractual provision would be defeated by allowing withdrawal to nullify it, courts are unlikely to let members escape.

5. The Drafting Lesson: Be Explicit About Which Obligations Survive Withdrawal

This case is a masterclass in the importance of precision. If an operating agreement intends to release withdrawing members from obligations—or impose obligations that survive their departure—it must say so explicitly.

Key drafting points:

• Identify obligations that survive withdrawal (buyouts, non‑competes, confidentiality, capital calls, etc.).

• Clarify whether withdrawal triggers any mandatory purchase or sale.

• Specify whether personal obligations end upon departure.

• Avoid ambiguous terms like “operating entity” without definitions.

Takeaway:The best time to prevent disputes is when drafting the operating agreement—not when litigating it.

Final Thoughts

Flink v. Smith is a powerful reminder that LLC membership is governed by contract—and contracts can bind people even after they walk away from the business. Withdrawal is not a magic eraser. For LLC members and business owners:Always assume that obligations may continue unless the agreement clearly states otherwise. For lawyers and drafters:This case should be required reading for anyone drafting buy‑sell provisions, withdrawal clauses, or long‑term transition plans.